Business slowdown, lack of control cause glut

Biz slowdown has resulted in poor take-up rates and ROIs for commercial office spaces in CBD, prime areas

By IZZAT RATNA / pic by AFIF ABD HALIM

Challenging business environment and lack of government’s control on the supply of office buildings entering the market are the major reasons of the current overhang in the sector.

Property analysts said the business slowdown has resulted in poor take-up rates and return of investments (ROIs) for commercial office spaces in central business district (CBD) and prime areas.

The existing companies that remain operational in these areas are forced to scale down, or relocate their businesses outside to reduce operating expenditure.

“In the past few years, the government did not introduce measures to control the supply of office buildings entering the market, which is one of the main reasons for the present overhang,” CBD Properties Sdn Bhd Datuk Adrian Wang told The Malaysian Reserve (TMR).

“Office spaces that are currently under construction near Bangsar South and south of Klang Valley will eventually worsen the glut, where landlords’ holding power on rental yields and purchase price are expected to be drastically revised downwards. Those who purchased the spaces would be badly affected once the stocks enter the market upon completion,” he said.

National Property Information Centre latest data showed that in the first half of 2017 (1H17), over 10,000 transactions worth RM12 billion were recorded in the commercial segment — representing a dip by 11% in volume, but an increase of 5.9% in value.

The increase in value was due to several large transactions involving offices, retail space and hotels.

The office and retail sectors saw an occupancy rate of 83.5% and 81.5% respect ively, although the unoccupied space for private office stood at 3.4 million sq m. Kuala Lumpur (KL) recorded the highest unoccupied office space of more than 1.62 million sq m, while retail space occupancies dipped from 86.8% to 84.9%.

Real Estate and Housing Developers’ Association Malaysia (Rehda) deputy president Datuk Soam Heng Choon said there is a big shift and correction within the office segment with more people upgrading to a newer and better building.

“The incoming supplies that are about to enter the market would also further intensify the prevailing pressure within the space, coupled with a significant drop in occupancy and rental rates in older buildings, as businesses are relocating to newer buildings with better facilities,” he told TMR. The future seems bleak as Soam believes that investment opportunities within the office market might cease to exist as developers are scaling back in their commercial developments due to unsustainable rental yields.

Rahim & Co International Sdn Bhd data showed that office space oversupply could reach up to 929,030 sq m in the next two to five years, a culmination of overbuilding and optimistic projection.

According to Knight Frank Malaysia’s Real Estate Highlights report for 1H17, the cumulative supply of purpose- built office space in KL and beyond KL (Selangor) stood at circa 9.2 million sq m.

However, Rehda past president Datuk Ng Seing Liong said office spaces’ performance is mostly determined by their location, as there are no fixed rules to predict any dips in transactions or rental activities.